If the Great Recession were a bad movie, who’d go back to see Part Two? Unfortunately, a scary sequel is just what some lawmakers might produce if they continue playing their dangerous game of chicken with America’s debt ceiling. “The Great Recession: The Sequel” would be an epic flop, wreaking havoc on our fragile economy and sending small businesses into a financial tailspin.
Congress is currently engaged in a debate over whether to raise the nation’s debt limit. This would allow the government to increase the amount of money it borrows so it can pay for expenses it incurs. Though nobody enjoys the thought of increasing the amount of money we owe to our creditors, the cost of not doing so, in the words of Federal Reserve Chairman Ben Bernanke, would be “catastrophic.”
We just witnessed a contentious debate over the federal budget, and now some in Congress are again playing politics — but this time with the debt ceiling. They are using the debate over raising the ceiling as leverage, demanding budget cuts in exchange for votes. To many this game of chicken might seem like more political posturing, but this time there could be devastating consequences just for playing.
First of all, if we don’t raise the debt limit, the United States would default on its loan obligations, and our economy would tank. It’s that simple. Even if that doesn’t happen, however, the very suggestion that we might default could be just as bad. Austan Goolsbee, chairman of the US Council of Economic Advisers, predicts that doing so could cause widespread instability in the credit markets.
And if the debt limit is not raised, Goolsbee added, America would witness “the first default in history caused purely by insanity.” A default would undercut any credibility the country has to borrow in the future, reverberating not only through the Treasury but also to banks of all sizes and ultimately to small businesses.
Small businesses already have a tough time applying and getting approved for loans from banks-and failing to raise the debt ceiling would make this problem go from bad to worse. Entrepreneurs would lose the ability to get loans to expand and hire new workers, to purchase equipment, or to make long-term investments critical to a company’s success, such as investments in clean energy. This is the guaranteed scenario if Congress doesn’t do its job. Interest rates would also spike, hurting small business owners where it matters most-their wallets. Higher interest rates means less cash for entrepreneurs trying to pay back a loan, stifling investments across the entire economy.
It’s time for leaders in Congress to work together to make responsible budget decisions that carry us through these uncertain financial times-not decisions that threaten to send us spiraling into another recession. We’ve already seen that bad movie. Let’s not be forced to watch an even worse sequel.